Generally there are three different methods for completing international transactions between financial institutions. The first method relies on pre-existing relationships between banks in different countries. Typically, large banks have relationships with correspondent banks in other countries. These large banks have established their own private processes for completing international transactions. The transactions completed using these correspondent bank relationships are typically for a large amount and involve a relatively small volume of transactions. This method for completing international transactions can be expensive and is not generally available for high-volume, low-value transactions.
The second method for completing international transactions is with a check. Checks are relatively simple to use and can be written by anyone with a checking account at a financial institution. The disadvantage of checks is that they require manual processing that delays the time in which a transaction is completed and adds costs to the transaction. Currency conversions also add to the costs associated with checks.
The third method is generally referred to as a “wire transfer” from an account at one bank to an account at another foreign bank. Wire transfers are a form of electronic finds transfers (“EFTs”) and are generally more accessible in that they are not limited to large banks that have relationships with correspondent foreign banks. However, wire transfers are generally costly, particularly where several intermediaries are involved in the transaction. Because a wire transfer is costly, it is not a cost-effective method for completing low-value, high-volume transactions.
Another form of EFT that is currently used domestically is known as direct payment or direct deposit instruments (hereinafter generally referred to as “direct payment”). A direct payment instrument is an electronically transmitted instruction to credit or debit a particular account. For example, a company can use direct payment to credit the accounts of its employees, customers, vendors, and beneficiaries. Direct payment instruments are becoming increasingly more popular as conventional payment methods, such as checks, decrease in popularity. Because the transaction is performed electronically, direct payment instruments offer convenience and reliability at a relatively low cost. The electronic system that supports direct payment instruments in the United States is referred to as the Automated Clearinghouse (“ACH”).
The ACH is a nationwide system supported by several operators, including the Federal Reserve Banks and other institutions. The ACH network is governed by a set of rules, which are administered by the National Automated Clearinghouse Association (“NACHA”). The ACH network provides for the clearing of generally small value, repetitive and one-time payments among banks that participate in the ACH network. Financial institutions collect transactions and package them in batched ACH files according to the NACHA rules for forwarding to other institutions via the ACH network.
Computer networks exist in other countries and regions of the world for processing different types of transactions among foreign banks. For example, many European countries have their own domestic EFT systems for low-value transactions. Another communication network that supports the processing of certain types of payments among financial institutions in different European countries is called the Eurogiro network. The types of payment services available with the Eurogiro network include standard account payments, check payments, and urgent cash payments such as wire transfers.
Currently, the Eurogiro network is also connected to financial networks in Asia, Africa, and the U.S. However, these transactions are completed via inefficient inter-continental connections such as correspondent banking payments or wire transfers. One of the primary inefficiencies in international EFTs concerns the formats of the electronic files used to process the transactions. For example, the Eurogiro network generally uses an electronic file format called SWIFT. However, financial networks and payment systems in other countries and regions use other types of electronic file formats to process transactions. These different formats complicate the processing of international transactions. Originating and completing international transactions often requires manual steps performed by bank employees which slows down the processing and adds costs to the transaction. Slower processing also adds uncertainty as to when transactions are settled.
In view of the increasing number of international EFTs, there is a need for an efficient method for processing large volumes of low-value transactions by systems using different electronic file formats. Specifically, what is needed is a method for automatically converting between ACH file formats and the file formats of foreign financial networks. The conversion process should preserve the necessary data contained in the electronic file so that each financial network can complete the foreign transaction. The conversion process should also provide uniformity and certainty to international EFTs. There is a further need for a conversion process that can also communicate messages and other data associated with a transaction. Finally, a conversion process is needed that can automatically complete the settlement of the transaction.